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Life has not been easy for investors in 2011, and even the savvy money-managers at ATP, one of Europe's biggest pension funds, have seen their strategy come slightly unstuck this year. The fund took a €1bn hit on its financial hedges though it still made a €700m profit on its investments overall.

ATP posted a profit of 5.3bn Danish kroner during the first nine months of the year, it said yesterday - mostly thanks to good investment results. Compared to ATP's overall fund size of Dkr554bn, this is an overall return of about 1%.

Chief executive Lars Rohde said he was particularly pleased with the fund's return compared with its peers: "If you compare ourselves with other pension funds or insurance companies, our results are good."

Nonetheless, he said, while the fund's asset portfolio made a positive return of Dkr11bn during the year - thanks mostly to the fund's diversification of investments - the hedging portfolio made an Dkr8bn loss.

This was down to a technical problem, according to Rohde. ATP cannot adequately hedge its exposure to Danish interest rates because the Danish market for hedging instruments - known as swaps - is too small.

He explained: "Basically, there aren't enough Danish swaps for us to buy. The vast majority of our hedging activity is therefore done with Danish government bonds, German bonds and euro swaps. This means we are at risk from any differential between Danish interest rates and German rates."

And Danish rates have recently fallen below German ones, a situation Rohde described as "quite extraordinary", and due in part to the sovereign-debt crisis gripping the eurozone. He continued: "This is a known risk for us, it is not unexpected. Last year, we made almost Dkr3bn in profit from our hedging activity because this differential went 'our way', so to speak. Now the opposite move is against us."

He added that ATP would not be changing its investment approach: "We are quite confident this will reverse itself over time. We have always been aware this effect is possible, it has been in our risk models for some time."

The hedging loss has not sent ATP into the red; it is still Dkr3bn up overall. And this portfolio return has been topped up by another Dkr2bn from ATP's pensions-administration arm.

Unlike most pension funds, ATP factors in how its liabilities move into its overall results, so a "profit" means not only that it has made money in the markets, but that it has kept ahead of any growth in its pension liability. In the pensions industry, liabilities are typically calculated by reference to bond yields - and because these have fallen dramatically in 2011, this has given pensions managers an exceptional challenge.

Last week, a number of the biggest Dutch pension funds - who, along with their Nordic counterparts are counted among Europe's most sophisticated investors - put out third-quarter results showing they too had been hit hard by this effect.

ABP, the giant Dutch civil-service scheme, said its solvency level has dropped from 105% to 90% in 2011. The 15-percentage-point drop came despite a fall in the value of its assets of less than 3%, from €237bn to €231bn over the nine months to the end of September.

PfZW, the healthcare workers' fund, actually made a profit on its assets during the nine months, of 1.4%, but its liabilities grew much faster - taking it from 104% solvency at the end of 2010, to 91% at the end of September.

UK pension funds do not release quarterly figures, and their annual reports are not typically available less than nine months in arrears.